LICENSING EXECUTIVES SOCIETY

Britain and Ireland

NEWS EXCHANGE
Issue 69: October/November 1999

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The IT and e-commerce special interest group chaired by Ben Goodger is taking a keen interest in the current UK Government proposals for regulation of e-commerce. These were published on 23 July 1999 in the form of the draft Electronic Communications Bill. .

The key elements of the Bill are as follows:

• The introduction of a new approvals regime for providers of cryptography support services (mainly encryption services for electronic signatures) and the confidentiality of electronic communications and data storage;
• A mechanism to allow the admissibility of electronic signatures in Court;
• Setting up a mechanism for the up-dating of legislation to enable the use of electronic communications where material is required, for example, to be “in writing” or sent by post;
• Empowering law enforcement agencies to require disclosure of “keys” to decrypt information where necessary.

The Bill has caused considerable controversy. Some argue that it is being side-tracked by the Home Office when it should be focusing on merely promoting e-commerce in the UK. An earlier proposal for mandatory “key escrow” has been shelved (for the moment).

The IT and e-commerce group would be very interested to hear from LES members, or their clients/colleagues, who have comments on the Bill, particularly from a licensing and rights management perspective. Comments on the Bill from members in industry who are engaging in, or hoping to engage in e-commerce, would be particularly welcome.

The Government has set a very tight deadline for comment -

by 8 October 1999!

Ben Goodger will be gathering comments and these can be routed to him at ben@iprights.com. (tel: 01865 791990).

The Bill's proposals can be accessed at www.dti.gov.uk/cii/elec/ecbill.html

Your Education committee needs you ...

Considerable effort will be needed to undertake all the educational initiatives planned for this year, so additional volunteers are being sought to reinforce the existing membership of the Education committee.

Ideally the committee would like to have at least one member from each region, so please contact Stephen Powell, committee chair, if this is a subject that interests you.

Stephen writes: ‘One of our current projects is to extend the MBA lecture programme to other universities and business schools.

‘Neil Muttock has recently joined our MBA team and is seeking to make progress in the south of England.

‘On another front, we are planning closer co-operation with the Institute of Trade Mark Attorneys so that suitable LES meetings can contribute points to the Institute’s recently-introduced CPD scheme.’ Email: willpower@cix.co.uk

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President's Diary

The future is bright for LES - both on and off the Net!

More than eighty members and non- members were drawn to the first of our London Autumn evening meetings at the Royal Over-Seas League when Jeremy Morton, a partner with Simmons and Simmons, talked us through the many ways that commerce on the Net is threatening established business models.

After hearing about the complexities of framing, keying and meta-tagging, I resolved to keep my credit cards details firmly in my pocket until after the Distance Selling Directive comes into effect, only to find myself, a couple of days later, keying in my details as I discovered the convenience of buying airline tickets on www.cheapflights.co.uk for the LES European conference on Venice!

LES webmaster Barry Quest and Nigel Jones took advantage of Jeremy’s experience to check how LES B&I should control links to the Society’s web site at http://www.les-europe.org through which new members are joining the Society in increasing numbers and established members are finding new business opportunities. Building on the successful meeting led by Jeremy Morton, we have a good programme in London for the remainder of the year, including a Japanese healthcare/biotech session organised by Christi Mitchell in October, Tony Hindley on valuation and taxation of IP in November and an update on Mary Swords’ and Yvonne McKeowan’s very successful Glasgow workshop on IP issues in Ireland in December.

As well as frequent meetings in Scotland and Ireland, meetings are also planned in Manchester, Nottingham and Birmingham with increasing demands from new members for a revival of activities in Leeds.

On a different plain, the 1,000-delegate LES USA & Canada annual meeting at the end of October, to be held this year in San Antonio, is an annual inspiration.

With Ben Goodger seeking comments on the Government’s draft Electronic Communications Bill, new regulations and directives from Brussels and IP catching business headlines in The Times, LES members have much to discuss.

EC/Laws committee chair Nigel Jones discusses the latest DTI initiative on draft block exemption for vertical agreements and proposed amendments to Community patent law

Changes on patentability of software are only a few of the many proposed changes to the EPC that were the subject of a recent conference. Details are summarised elsewhere in the article by David Cannon, one of the longest standing committee members. As David explains, the intention is for there to be an inter-governmental conference on the proposed changes late next year, and to implement changes to the Convention by mid-2002.

It is unclear whether the proposed changes to the EPC are being co-ordinated with the provisions of the draft regulation on the Committee Patent. Based on the latest information, the latter is due out soon. The potential for overlap and conflict with the EPC revisions are very significant, notably in relation to translation arrangements and enforcement procedures. This is an area we will be monitoring closely.

We have been consulted by the DTI in relation to the recently-circulated draft block exemption for vertical agreements. The DTI’s objective was to obtain input before a preliminary meeting at Community level. Our primary focus in the paper we submitted was on the provisions that sought to explain when an agreement would be covered by this new block exemption and when, instead, it would be covered by the Technology Transfer Regulation.

We are hopeful that our comments will be taken into account, and that the eventual block exemption will be more user friendly than the initial draft. We are also still awaiting guidelines from the UK Government on the way in which vertical agreements will be dealt with when the Competition Act comes into force in March of next year.

Once we have seen these, we will arrange a meeting to explain the proposed new arrangements with members.

Other issues we are continuing to monitor include developments with the utility model directive and the numerous pieces of draft legislation relating to e-commerce.

Future meetings
Developments the EC/laws committee plan to make the subject of forthcoming evening or half-day meetings are

• the proposed changes to the European Patent Convention relating to patentability of computer software, and
• developments in the UK and Brussels in the way in which the competition authorities are going to treat supply agreements and other forms of so called ‘vertical’ agreements.

Coherent legal framework proposed

An amended proposal for a coherent legal framework for e-commerce within the single market was put forward by the European Commission on 1 September.

It takes account of the favourable Opinion of the European Parliament from May, and introduces a number of clarifications.

These concern the rules of opting out from the unsolicited e-mail advertising and on-line contracts, how existing EU Directives apply, the protection of personal data and definitions of services covered.

To preserve the careful balance of interests in the original proposal, the Commission maintains the idea of exemption from liability for on-line service providers that act as intermediaries.

The full text of the proposal can be downloaded from http://europa.eu.int/comm/dg15/en/media/eleccomm/eleccomm.htm

More protection for designs across the European Community: new regulation proposed

The Commission of the European Communities recently presented an amended proposal for a Council Regulation on Community Design. This is compatible with European Directive 98/71/EC* which requires member states to harmonise their design laws, though in contrast it provides for a unitary form of protection extending throughout the single market of the EU.

Both unregistered and registered Community designs are provided for, says Bill Downey in this special report. To qualify for protection an unregistered design must be made available to the public. To qualify for either registered or unregistered protection a design must be new and have individual character.

The design of parts as well as the whole of a product including parts of a complex product are protectable, providing in the latter case that those parts remain visible in normal use. Normal use excludes maintenance, servicing or repair.

Features dictated solely by function are excluded from protection as are also the so-called must fit features. The protection cannot be exercised against private non-commercial or experimental acts. There is a right to continue provision for prior users and a specific exhaustion of rights provision.

A Community design will extend to cover any design which does not produce on the informed user a different overall impression and in assessing the scope of protection the degree of freedom of the designer in developing the design is to be taken into consideration. The interpretation of this wording could lead to considerable difficulties in practice.

The term of an unregistered design will be three years from first being made available to the public in the community. The term of a registered design will be five years from the date of application for registration, renewable for further periods of five years up to a maximum period of twenty five years.

Both an unregistered and a registered community design may be declared invalid on an application by a Community Design Court or on the basis of a counterclaim in an infringement action.

Both may be licensed for the whole or a part of the Community. The licence may be exclusive or non -exclusive. The owner of the right may bring proceedings thereunder against a licensee for contravention of the provisions of the licence as to duration, the form of the design, and the range and quality of products.

Without prejudice to the licence provisions, a licensee may bring proceedings for infringement only with consent of the owner, although where the licence is exclusive the licensee may bring proceedings where the owner has been given notice of the infringement and has failed to act.

‘Right to repair/spare parts saga’

Although the Directive 98/71/EC requires member states to harmonise their design laws, this is not so in the case of spare parts insofar as the components affect the appearance of a complex product.

But, Bill Downey reports, the Commission may be moving at last. It is to submit an analysis of the consequences of the provisions of the Directive for Community industry by the 28th October 2004 after appropriate consultation with the parties most affected.

The Directive may then be amended but, until such time as it is, member states are required to maintain their existing legislation in force and to change it only if the effect of the change is to liberalise the market in such parts.

In accordance with the proposed new Design Regulation, community designs will not extend to protect designs of such parts and any change to this will take into account any proposal the Commission may make to amend the Directive on this topic.

When the coin doesn’t fit ...

The ‘right to repair/spare parts’ saga took an interesting step forward, as Barry Quest points out in this report on the recent Mars v. Tecknowledge case – curiously, in the unlikely field of software.

Intellectual property, Barry writes, occupies an equivocal area of the law. Monopolistic protection is permitted, exceptionally, to preserve individual ownership rights and encourage innovation, but subject to a series of special limitations.

One well established limitation is the common law ‘right to repair’. IP cannot be used to prevent a legitimate purchaser of a protected product having that product repaired if it breaks down or wears, as long as the nature of the repair is not so extensive or unusual as to amount to ‘re-manufacture’.

The British Leyland case in the 1980s extended this, by permitting manufacture of supplies of copied car exhaust systems in anticipation that they would be needed for repair purposes.

This permission was given notwithstanding copyright protection for the exhaust systems, but the decision suggested that the position might not have been the same had there been statutory registered design protection.

This case, and other disputes in the automotive industry, gave rise to the 1988 legislation that removed all protection in copyright and design law for ‘must fit’ and ‘must match’ spare parts.

What is a legitimate ‘repair’?
Whilst going some way towards resolving the automotive spare parts issue, another problem which has remained is the question of what is a legitimate ‘repair’ rather than an unacceptable update or improvement.

There are products which are of little value once they become outdated but could continue to be used if they were ‘repaired’ by modification. If this involves copying or rebuilding a protected part, such as one that is not an excluded ‘must fit’ or ‘must match’ item - does this constitute infringement?

The Mars case was concerned with vending machine coin mechanisms that became outdated because they would not take new coins. The defendant decompiled the mechanism software and modified this to allow it to accommodate the new coins.

Faced with the European Software Directive which allows decompilation for the purpose of producing separate ‘interface’ programs, and the British Leyland case which gave a right to make certain copies for repair purposes, the court could have decided on a ‘public policy’ basis that the defendants activities were legitimate.

Bravely it didn’t.

The court held the activities of the defendant to be impermissible, as an infringement of copyright and database right, on the refreshingly simple and logical ground that the legislature could have expressly excluded such activities at European or national level, but did not do so.

Despite common reference to the ‘spare parts’ exception, there is in fact no generalised right to ignore protection in this area, only a specific right of genuine repair which in the Mars case was not applicable.

• Directive 98/71/EC came into force on 17th November 1998 and must be complied with by the 28th October 2001, although the UK hopes to comply well before that date. There is currently no date for implementing the Council Regulation on Community Design. The full text of the Regulation may be downloaded from the Europa website.

An Inter-Governmental Diplomatic Revision Conference is likely next year to agree amendments to the European Patent Convention (EPC), due to come into force by mid-2002. However, precisely which of the EPC’s provisions will be amended, and how, currently seems uncertain, and much clarification before next year seems unlikely. Our special correspondent, David Cannon, considers the options.

What lies ahead when the European Patent Convention comes up for revision next year?

Despite the uncertainty, there already seems to be a strong possibility that the substantive law of the EPC on patentability will be amended, at least by removing the express bar on patenting computer programmes as such.

However, of potentially greater general (and economic) interest are any amendments arising from the work of two inter-governmental working parties set up by the June conference in Paris.

These are considering how the present arrangements for litigating granted European patents in the countries to which they extend might be improved and how the cost of the present translation requirements upon patent grant might be reduced.

More specifically, the working party concerned with improving national litigation arrangements for European patents is expected amongst other things to provide a draft voluntary protocol that would commit any signatory states to accept uniform rules of court procedure and a common court of appeal.

The other working party has been asked to report this year on how translation costs at the grant stage might be halved.

Recommendations arising from their report, and perhaps one or more further draft voluntary protocols, may therefore be before the revision conference.

These voluntary protocols would commit any signatory states not to call for translation of the description part of the patent specification if this is available in one or more nominated languages, e.g. in English or possibly one of English, French and German.

Of more specialist interest, several technical amendments are likely to be proposed. These would include amendments intended to facilitate (a) combined search and examination by the EPO and (b) the EPO’s administrative decision making, e.g. by changing the voting rules in the Administrative Counsel.

Requests
Besides proposing holding the revision conference in 2000, the June conference made several “requests”.

First it asked each member state to consider reducing the number of its national courts with jurisdiction to hear patent enforcement (and revocation) suits. Second, it urged the EPO to look into several matters. These include taking steps to reduce the average duration of prosecution to patent grant to three years, and to give further thought to the introduction of grace period.

The foregoing of course covers only some of the possible EPC amendments which the EPO and its advisory bodies have been studying for the past few years.

Some of these, mainly some essentially procedural ones, are likely to be generally regarded as uncontroversial and beneficial; they are likely to be included in the revision.

On the other hand some, such as removing the express patent bar on methods of treating humans and animals, may be judged controversial and excluded. In this area especially we will just have to wait and see what transpires.

The scope of protection available to computer programmes appears to be somewhat wider and, from the point of view of owners, more valuable than was once assumed. This was confirmed by a High Court decision of earlier this year.

Departing employees have no rights to use of company software

By Pamela Morey-Nase

The Cantor Fitzgerald v Tradition case is of interest in relation to both the scope of copyright protection that is available to computer programmes, and the use that past employees are entitled to make of the software they worked on during their employment.

The Court found that copyright infringement is not restricted to the reproduction of code, and that any use of source code (even without copying) by a former employee may amount to a breach of confidence.

The facts were that the plaintiffs carried on business as inter-dealer brokers in bonds, making use of a computerised bond-broking system that comprised a complex collection of computer programmes.

The managing director of the plaintiff company, having been dismissed, joined the defendant companies, taking with him several computer programmers who had been working for the plaintiffs. The defendants then proceeded to develop a competing computerised bond-broking system in a very short period of time.

The plaintiffs sued for copyright infringement and breach of confidence.

The decision was that reproduction of a ‘substantial part’ of a copyright work amounts to copyright infringement. But what amounts to a ‘substantial part’ of a computer programme?

The Court found that ‘substantiality’ is to be judged in relation to the collection of programme modules viewed as a whole, and the skill and labour in design and coding that went into that part of the program that is alleged to have been copied.

‘Substantiality’ is not to be determined by reference to whether the system would work without that part of the programme, or by reference to the amount of use that the programme makes of a particular section of code.

The collection of programme modules viewed as a whole includes the ‘architecture’ or general structure of the programme which, like the plot of a novel or play, is capable of copyright protection if sufficient of the programmer’s skill, labour and judgment has gone into it.

In this case, it was held that even though the defendants had nevertheless reproduced only a relatively small amount of code, they had appropriated a substantial part of the skill and labour that had gone into the plaintiffs’ program. Consequently, they had infringed copyright.

The employees working on the software had also breached their obligation of confidence to the plaintiff. While former employees are entitled to use techniques of general application after the end of their employment, they are not entitled to make any direct use of, or reference to, source code belonging to their previous employer.

In this case, the source code had been used only as a reminder, for the purposes of verification. However, that use was held to amount to be sufficient to amount to a breach of confidence.

The decision makes it clear that copyright protection for computer programs is not restricted to the protection of code, but may, in appropriate cases, extend to algorithms or sequences of operations. Copyright may, therefore, be infringed even though only a small amount of code has been copied.

Former employees may be in breach of obligations of confidence if they make any use at all of source code that belongs to their former employer.

E-commerce - what’s happening and how it affects us

Jeremy Morton, a partner at Simmons & Simmons, gave an inspiring talk at the recent London meeting on the legal obligations and complications of doing business on the Net. He subtitled his talk, ‘Everything Falls to Bits’. This had two meanings.

First, Jeremy explained how the development of e-commerce will mean that traditional business models may have to be reassessed. Second, he emphasised the difference between selling digital ‘bits’ and physical ‘atoms’, echoing what Nicholas Negroponte of MIT wrote in his 1995 work ‘Being Digital’ - many traditional media are going to be overtaken by online digital transmission.

Jeremy explained that the Internet is bringing consumers new pricing structures and that it offers apparently greater price transparency.

This may mean that the division of markets, with different prices, might not survive.

He also talked about sites giving information and ‘digital bits’ away for free, and questioned the degree to which e-commerce consumers were concerned by ‘authenticity’ of product, when digital copies are perfect.

After examining the market, Jeremy explained the latest legislative developments. These were all promulgated by different legislators. The laws on jurisdiction and applicable law were becoming very confusing.

He also described how internet service providers and other intermediaries will be exempt from liability for unlawful content in certain circumstances, although they will still have some liability.

He then went on to look at existing laws that had been tested by e-commerce.

Parallel imports would be facilitated by the Internet, and Jeremy argued that we may be moving towards an international market place with free movement of goods, in respect at least of trade marked products.

He also talked about unauthorised use of brands on the Internet, and the practices of framing, keying and meta-tagging.

Finally, Jeremy rounded up with a review of the issues for licensors, focusing on anti-piracy efforts and the need for a measured approach when it came to relatively harmless fan sites and the like.

He also explained what sorts of terms might need to be included in agreements with licensees if they were to be allowed to use the Internet for promotion of licensed goods.

New Vice-president and ardent chrysanthemum grower

Christopher Goodman, the recently elected Vice-president, is a partner with patent and trade mark attorneys Eric Petter Clarkson of Nottingham and was formerly secretary to the Society. He chairs the LES Midlands region and has for a number of years been a LES International delegate; he is currently chair of the International Environmental Technologies committee.

Chris has had much industrial experience with international companies, having joined Standard Telephones and Cable direct from Manchester University.

He joined Philips Electrical & Associated Industries where he qualified as a Chartered Patent Agent and later moved to GEC and later to Plessey as manager of the Beeston (Nottingham) patents department.

He has many sporting and other interests, and is president of his local cricket club and vice-chair of a registered children’s charity, ‘First Step Appeal’. Gardening takes up some of his time, in particular chrysanthemum culture (he has won a silver medal, now going for gold), and he is appreciative too of classic cars and steam engines.

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NEWS Exchange is circulated as a service to members of the Society. Editorial contributions and advertising/insert enquiries are welcome and should be addressed in the first instance to the editor.

Editor: Reg Peplow, Business News and Features, 16 High Street, Buckden, Cambs, PE18 9XA. Fax 01480 812221 email: regpeplow@intecc.co.uk